Gaining Visibility with Labor Budgets and Job Costing

Control costs, protect gross margins and gain a true picture of your financial performance.

If budgets are the roadmap for each contract in your portfolio, job costing is the car you’re using to get from point A to point B. When used together, these tools give you a clear picture of where you’re at, where you want to go and how you’re going to get there.

You may think you’re job costing already, but if you’re not looking at true costs attributed at the job level, you’re not job costing the way you need to. Likewise, if you’re only thinking about direct labor costs and employee wages when you’re budgeting, your gross margins could be taking a hit (especially since its often indirect costs and unplanned costs that hurt a cleaning business’ gross margins the most).

Loosely put, job costing is a company’s working budget. Even if you aren’t actively job costing, you’re probably comparing:

• How much money your company brought in for a particular job — (revenue, not to be confused with profit).
• How much money did you actually make (think: total revenue minus total expenses equals total profit).

To get true insight into your job activities, you should do both budgeting (estimated income and expenses) and job costing (actual income and expenses).

Macro and micro budgets.

Not all budgeting strategies are created equal. With workforce management software, they’re often broken down into two buckets: micro and macro.

If using budgets of any kind (labor and/or general ledger), then you should at least do micro level budgeting. Micro budgeting equates to the income and expense you can tie to an individual job site. You often have internal jobs (aka cost centers) created where you track things like administrative wages and salary.

These details can then be rolled up into a high-level (macro) budget. The higher level could be for your entire company, division or geographic territory. Often, this is where you track expenses that aren’t tied to a single job — things like rent or utilities. Many companies get by with micro level budgets. But as your company grows, you may find a need to expand to macro budgets.

Why job costing matters for cleaning companies.

Think about all of the contracts you’re handling in your client portfolio. It isn’t feasible to track this type of information manually, in spreadsheets, or even in disparate software solutions. For cleaning companies, this is especially important, as you have even more details to keep track of. Job costing provides a deeper view into what makes up the revenue and true costs tied to a particular job. With accurate job costing, you can answer questions like:

• Are you billing enough for the services you provide?
• Do you have enough resources (especially labor) assigned to each job? Or, do you have too many resources linked to a job? Accurate scheduling is key to job profitability.
• How can you fine-tune operations to have better balance within your jobs?

When you consider that labor is consistently a cleaning company’s biggest expense, it’s important to continually track it. Enter: labor budgets.

How labor budgets can help your cleaning company job cost.

Labor budgets specifically help with job costing by comparing what you originally quoted in a customer contract against the real-world activity your workforce is delivering. Typically, the original estimate in your contract becomes your initial budget. Once your team has worked on the job for a while, you can revise the budget based on actuals or use a comparable site to gauge what activity you can expect on your new job.

Labor budgets give you maximum visibility into how many hours are involved per site, per person. With this added, job-level insight, you can identify trends (both positive and negative) surrounding each contract’s profitability. With it, you can better manage your resources and know where you can allocate or reallocate resources, depending on the circumstances.

Pro tip: If you’re looking for ways to dig into job costing, start with hours. This drives information like: how many hours are available to use versus how many were used, overtime and overall general availability.

When should you revisit your labor budgets?
Labor budgets are not a “set it and forget it” part of your business. Ideally, revisit your labor budgets weekly. That way, you can catch costs (like employee overtime) before they push you over budget. For example: if you need to have an employee fill in at a job site for someone who is sick, you should schedule a cleaner that doesn’t already have overtime on their record, so you don’t incur an extra expense.

Besides weekly reviews, you should review labor budgets at period-end. This can be a deeper dive analysis looking into what happened over that period. What were expenses you could control? What were expenses outside of your control? From there, adjust or repeat processes based on what’s profitable.

Learn by example.

Let’s walk through an example of using labor budgets for job costing. If you know your contract outlines 40 hours of work for the week (8 hours of scheduled work per day) for a set budget, you can easily run a report in your payroll workforce management solution, determine you should be budgeting $12 per hour for scheduled work, and schedule based on your cleaners’ pay rate. From there, you can explore:

• Budgeted hours and rate for employees who work at a particular job. Are the hours/rates the most accurate, or have circumstances changed requiring these to be reevaluated or revised?
• Your general ledger labor and revenue account. Are things being posted to the correct GL accounts?
• Total labor hours budgeted for a job. Total labor hours/job is the overall target for which you should be aiming. You can break down the total by various attributes (e.g. hours type, day of the week, etc.).
• Flag budgets for salaried vs. hourly employees. For salaried employees, overtime does not usually apply (but potentially could, depending on state or jurisdiction). For hourly employees, overtime is almost always a consideration (and concern).
• Drilldown into daily budgets. This allows you to view details from a different perspective.
• Create recurring schedules through your current fiscal year, or even into your NEXT fiscal year. Having this information tracked from year-to-year gives you a year-over-year comparison.

Get started with labor budgets and job costing.

Leverage labor budgets and job costing software to gain visibility into your profitability. By using a holistic software solution (think: a software solution that combines workforce management and operations WITH built in accounting and general ledger), you benefit from having all of your data in a single place, without having to rely on external budgeting software, spreadsheets or an independent tool to dig into budgeting at this level. Plus, most (if not all) financial statements and reports automatically include budget to actual comparisons.